Abhay Singh
The US consumer price index increased last month at the weakest rate in almost three years, supporting the central bank’s decision to begin reducing interest rates.
According to the Labor Department, overall price growth for the 12 months ended in July was 2.9%, the lowest since March 2021, and decreased from 3% in June.
The monthly inflation report was being closely watched
The monthly inflation report, which was triggered by weaker-than-expected July job growth, is expected to help the Federal Reserve convince them that high borrowing costs are restoring inflation to normal, despite rising housing and food costs.
Since July 2023, the Federal Reserve has maintained its benchmark lending rate at 5.3%, which is a nearly two-decade high. The public has been negatively impacted by this move as higher rates for credit cards, mortgages, and other loans have resulted.
The bank hopes that by maintaining high rates, it will deter borrowing and lessen the demand pressures that were contributing to the rising costs of homes, vehicles, and other goods.
The central bank faces pressure to cut rates as inflation approaches its 2% target rate, aided by lower oil prices and resolution of Covid-era supply chain issues.
The three major stock indexes in the US were little changed after the report
GAM Investments’ Julian Howard predicts a September rate cut, but warns the Fed will remain cautious due to a recent increase in UK inflation. He believes the Fed will remain cautious about the future.
He said “While the UK’s higher-than-2% figure, was to an extent expected, it is still slightly jarring when inflation comes in higher than the target after a recent rate cut, Whatever the Fed does in September, it will be very keen to convey ongoing data dependency from one meeting to the next, rather than setting out a trajectory that might fail to materialise.”
Following the data, which was much in line with expectations, the three main US market indices saw minimal movement.
US inflation has significantly decreased since June 2022, reaching 9.1%, but rising grocery prices have remained a political pressure on the White House during the presidential election year, affecting Democrats.
Joe Biden said “Today’s report shows that we continue to make progress fighting inflation and lowering costs for American households, We have more work to do,”
Over the past year, prices for appliances, cars, airline tickets, and furniture have decreased, while petrol prices have dropped 2.2%. However, many necessities have continued to rise, with housing accounting for over 70% of inflation, rents jumping over 5%, grocery prices rising 1.1%, and car insurance soaring over 18%.
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